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Spend Wisely on Technology

Your technology investment doesn’t stop at your bank account. Your time is even more valuable

The cost plays a significant role in any new technology purchase that you may be considering. In many cases, it becomes the key criterion for selecting a technology solution. There are surveys conducted regularly that indicate what percentage of their revenue firms spend on technology, and advisors tend to compare themselves with the surveys to determine if their firm is spending the right amount. Perhaps you have heard other firms state that they are increasing their technology spending in the next year. Why would any firm commit to spending more money without defining their goals first? The reality is that so many variables can influence the technology expense line of a firm. So how should you evaluate the effectiveness of your firm’s technology spending? How should you think about spending your next dollar on technology? The answers to both questions are straightforward—if you conduct your evaluation process properly.

The first place to start is with the technology solutions that your firm currently owns. How satisfied are you with the technology you have? Give your technology an overall satisfaction rating, then ask yourself if you are receiving the appropriate level of value with your current technology solutions. Rate your individual technology solutions on a scale of one to 10. The value rating is often the prime mover with new technology purchases.

Answering these two simple questions will give you a clear starting point and allow you to make sensible judgments about complex systems. For example, before you purchase an asset rebalancing solution, make sure you are satisfied with your current portfolio reporting solution, which will be a critical component in providing account data for the rebalancing process. The last thing that you want to do is pile new technology solutions on a product or platform that is not currently meeting your expectations. Be careful not to assume that the hottest new technology solution will make your existing technology products better. You may discover that your money is better spent on replacing a more essential solution before adding something new. Sometimes the best step for moving forward is to back up just a bit.

Another part of the evaluation takes into account how you view your overall technology expenses. Unlike your office rent, which is generally a consistent amount, your technology expenses should be analyzed in detail and on a regular basis. I often hear advisors make comments like: “I can’t believe how much I’m now paying this technology company.” The reality behind this comment is that the cost itself isn’t really a surprise—most advisors know the terms of their contracts. Rather, it is the fact that they believe the cost is too high based on the current value they are getting out of their technology. Of course, the objective is to not let this happen. The best practice is to use the regular technology expense review process as the means to confirm you are continuing to receive the value you expect. No surprises and no buyer’s remorse.

Getting the optimum value for your technology dollars also depends on how you execute your technology strategy. Advisors will often spend months and maybe even years evaluating their next technology purchase and then spend a small fraction of this time on the execution and rollout after they make the purchase. Then, unfortunately, this lack of attention and focus leads to disappointment, dissatisfaction and, ultimately, decreased return on the technology investment. Making a new technology purchase should be treated like signing up for running a marathon. Once you sign up, your training and preparation begins, but the actual race may be months away. Similarly, draft a well-defined technology implementation plan for any new technology purchase. In your plan, be sure to include items like training, testing and implementation goals, and retirement of your old technology if a system is being replaced. In the end, writing the check is perhaps the easiest part of the exercise.

Another important area to consider in evaluating your technology expenses is related to the employees of your firm. The actual dollars that you spend on technology might be low, but the true expense to your firm could be much higher due to the lower productivity of your staff. Too often, low productivity is easily overlooked and considered business-as-usual simply because advisors don’t have a measurable starting point. For example, you might have avoided purchasing an industrial strength imaging system that offers productivity gains because you believed it was too expensive, but the time it takes for your employees to scan, file and retrieve documents may be significant compared to more efficient systems. The current productivity cost versus the potential productivity gains of your employees should always be included in any technology expense evaluation, for both existing and new technology considerations.

In reviewing the technology expense line of your firm, the most important question is not how much you are spending, but whether you are achieving the right level of satisfaction and value in return for your spending. Furthermore, as your technology expenses increase, the goal should be to ensure that you are seeing a similar or greater improvement in the scalability and productivity of your firm. Spending more money on technology does not necessarily yield a more efficient practice. However, with the right evaluation of your current solutions, you can deploy your additional spending in just the right places. So be very thoughtful, develop a strategic plan and remember to focus on execution for your technology expenses, no matter how much your firm plans to spend.

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